Medicare Part D - MedPAC Report

MedPAC REPORTS ON MEDICARE PART D:
Enrollment, Benefits and Formularies

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Introduction

The Medicare Payment Advisory Commission (MedPAC) was created by the Balanced Budget Act (1997) to report on issues affecting Medicare. The June 2006 Report to Congress: Increasing the Value of Medicare (http://www.medpac.gov/publications/congressional_reports/Jun06_EntireReport.pdf) includes an analysis of Medicare Part D plans including enrollment in plans, plan benefits and formularies. The report also includes a discussion of how beneficiaries chose the drug plan in which they enrolled, which will be examined in a later Weekly Alert.

PDP Offerings For 2006

Beneficiaries who remain in original Medicare may enroll in prescription drug plans (PDPs) offered by private insurance companies that provide only prescription drug coverage. There are currently 1,429 PDPs available to beneficiaries across the United States. Of those PDPs, 1,225 are offered by sixteen large organizations. The remaining 204 PDPs are offered by sixty other organizations. The high numbers of PDPs available may not offer as many variations as one might assume, due to identical benefit structures being offered in different regions of the country.

Individuals may choose from a variety of PDP options. Those who are eligible for the low-income subsidy (LIS; see the May 25, 2006 Weekly Alert for more on LIS) and who do not choose a plan are auto-enrolled into plans offering the statutorily-defined standard benefit. The assortment of benefits available includes variations in the deductible, cost-sharing structure, coverage in the “donut hole”, or coverage gap, and the offering of mail-order pharmacy services.

The overwhelming majority of PDPs, 91%, use cost-sharing tiers with fixed dollar co-payments instead of the 25% coinsurance in the standard benefit. 61% of PDPs use a set co-payment for lower priced drugs and a percentage coinsurance amount for higher priced drugs. 13% of PDPs offer coverage for generic drugs in the donut hole, while 2% offer coverage for generic and brand name drugs.

Out of the sixteen large organizations offering PDPs nationwide, ten have at least one plan active in the 34 PDP regions into which the country is divided. Although the average monthly premium varies by PDP region, the average monthly premium for basic benefits only varies by about ten dollars.

Characteristics of MA-PDs

Under Part D, beneficiaries also have the option of choosing a Medicare Advantage plan with drug coverage (MA-PD) rather than a stand-alone PDP. When enrolling in a MA-PD plan beneficiaries must get all of their Medicare-coverage through the MA-PD. In 2006, 80% of MA-PDs have no deductible for their drug coverage. MA-PDs tend to use a four tier co-payment system (adding a specialty tier for more expensive drugs) and provide more coverage in the donut hole gap. 23% of plans offer gap coverage for only generic drugs, and 5% offer coverage in the gap for both generic and brand name drugs. Also, the average monthly premium tends to be lower than for PDPs (often zero, though not everyone has access to a zero-premium plan).

Part D Formularies

MedPAC reviewed analyses, conducted by Georgetown University and others, of formularies submitted to CMS as of January 1 2006. They found that formularies tended to fall within three standard groupings: 1) 25% cost-sharing for all listed drugs (the standard statutory benefit); 2) a two-tiered co-payment system with separate tiers for generic and brand name drug; and 3) a three-tiered system with separate tiers for generic, preferred brand name, and non-preferred brand name drugs.

61% of PDPs and 68% of MA-PDs used the three-tiered grouping of generic, preferred brand name, and non-preferred brand name drugs. 30% use a two tiered system for brand name and generic drugs. 10% have a 25% coinsurance for all drug coverage.

Findings also show that PDPs cover fewer drugs than MA-PDs. PDPs average 957 drugs on their formulary (range of 618-1,743). MA-PDs average 1,096 drugs on their formulary (range of 509-2,130). For both PDPs and MA-PDs, more drugs are placed on higher cost sharing tiers to reduce the financial risk for sponsoring organizations. In addition, plans are more likely to include more alternatives on their formularies for a category or class of drugs if fewer therapeutic alternatives are available.

Utilization Management Tools

Part D plans usually require some sort of utilization management tools that affect beneficiaries' access to the drugs they need. For example, they may require prior authorization before coverage, step-therapy (where the individual must try a lower cost drug first), or quantity limits. All PDPs require prior approval for at least one drug in their formulary. 98% of MA-PDs have a prior authorization requirement for at least one drug on their formulary.

Conclusion

The private companies that offer Part D prescription drug plans, while providing a wide array of choice and service on paper, place great restrictions, through the use of tiered pricing and utilization management tools, on the coverage that is truly available to Medicare beneficiaries. Medicare beneficiaries would be better served by a single, uniform prescription drug benefit within traditional Medicare.